The Monetary Policy Committee (MPC) of the Bank of Ghana has kept the policy rate unchanged at 14.5 per cent with headline inflation remaining above the upper band of the medium-term target of 8±2 per cent.
All the core inflation measures and inflation expectations have increased, which point to heightened underlying inflation pressures.
Dr Ernest Addison, the Governor of the Bank of Ghana, in a press statement on Monday, said the latest forecast showed that inflation would likely remain above target in the near-term, driven by both external and domestic factors, and only return to target in about four-quarters ahead.
He said the key risks to the inflation outlook, include rising crude oil prices and its transmission to ex-pump petroleum prices and transportation costs, rising global inflation, food price uncertainties, and the fiscal outlook.
“The MPC envisaged this scenario when it raised the policy rate in November 2021 to contain the inherent aggregate demand pressures likely to drive prices in the outlook,” he said.
The Governor said the Committee was of the view that the dynamics associated with the November 2021 policy rate hike were yet to be fully transmitted and expected the decisive implementation of the fiscal correction measures, especially the 20 per cent cut in expenditure to help moderate the upside risks to the inflation outlook.
“The Committee will continue to monitor the impact of these policy measures and as needed call an extraordinary meeting to re-assess the inflation outlook over the forecast horizon and take the
necessary policy decisions, accordingly,” he added.
He said the global growth momentum moderated somewhat in the last quarter of 2021, owing to continued supply chain bottlenecks and renewed concerns about the economic impact of the more transmissible Omicron COVID-19 variant.
He said global price pressures intensified last year, primarily due to sharp increases in energy prices, rising demand pressures, and persistent supply chain disruptions.
On the domestic stage, he said the economy continued its strong recovery from the COVID-related economic downturn.
The latest Ghana Statistical Service update showed that Real GDP growth for the first three quarters of 2021 averaged 5.3 per cent, compared with an average contraction of 0.6 per cent recorded in the same period of 2020.
Similarly, non-oil GDP growth averaged 6.9 per cent against a contraction of 0.3 per cent over the same comparative period. Overall, GDP growth for 2021 is projected to exceed the target of 4.4 per cent.
Dr Addison said the Bank’s updated Composite Index of Economic Activity (CIEA) recorded an annual growth of 10.2 per cent in November 2021, compared with 11.9 per cent in the corresponding period of 2020.
He said the key drivers of economic activity during the period were increased industrial production, consumption, exports, construction activities, and air-passenger arrivals.
The Governor said the Bank’s latest confidence surveys conducted in December 2021 signaled mixed sentiments, while consumer confidence softened because of recent increases in ex-pump petroleum prices and the announcement of new tax measures in the 2022 budget, business sentiments, on the other hand, improved.
He said the improved business sentiments were driven by the achievement of short-term company targets and optimism about companies’ growth prospects.
In addition, the Ghana Purchasing Managers Index (PMI), which gauges the rate of inventory accumulation by managers of private sector firms and which measures dynamics in economic activity, increased for four consecutive months in the second half of 2021, a development, which is consistent with the observation of a steady increase in economic activity.
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